Investment-grade commercial real estate prices gained 4.4% in the third quarter of this year. But, it's hard to tell if -- like brief blips of hope we've seen in consumer spending, unemployment and even luxury meals in London -- this is a change in the market or just a tease.

This increase in the MIT Center for Real Estate's transaction-based index (TBI) is the first up-tick in more than a year and the biggest gain since the middle of 2007. One quarter doesn't make a trend, cautions David Geltner, director of research at the MIT Center for Real Estate, but he says, "this is the strongest sign of a bottom that we've had in two years." The TBI reached 36.5% below its 2007 peak last quarter, up from 39% from the high-water mark in mid-2007.

Loopnet (NASDAQ: LOOP) operates an online marketplace to allow for the purchase of commercial real estate. Of course, the industry has been in a slump for the past two years. That is, transaction volumes are low, credit markets are still frozen, vacancy rates continue to rise and asset prices remain on the down trend.

Yes, it's hard to find any silver lining.

Remember the havoc in the financial markets when the residential bubble burst last year? Are we in for a rerun this year or next year?

You are probably thinking that such an event could not occur. Well think again. There is a report that says that we may be in for another crisis.

The report was initiated by Federal Reserve analyst, K.C. Conway. Conway is a senior real estate analyst at the Federal Reserve Bank of Atlanta. The Federal Reserve has acknowledged the report but said that it is not part of its formal opinion. What does the report say?

This is not an abstraction: buildings large and small are showing gaping vacancies. Storefronts are empty. Entire buildings sit waiting to be occupied. In Manhattan, retail vacancies have reached their highest rates since 2001. For the second quarter of this year, vacancies hit the absurd height of 12.4%, thanks to unemployment trends that won't quit and consumers reluctant to pry open their wallets.

Retailers are being hit just like the residential market.

After a nifty rebound off a 52-week low of $5.73, industrial and financial services giant General Electric (NYSE: GE) is in a weird place. The company's shares are trading at around $11.75, which is well below the $15 levels achieved in early May. This would seem odd as GE appears to be well positioned for the Green Shoots Scenario. The company has a big presence in alternative energy, health care solutions, and industrial products -- all big beneficiaries of both the Obama stimulus package and a nascent economic rebound.

So why does the market seem to be scared of GE? A couple of key reasons. First, GE's investments in commercial real estate (CRE) are looking increasingly toxic as the rate of CRE failures soars and CRE debt remains difficult to roll over.

Listen to what Richard Parkus of Deutsche Bank has to say about commercial real estate. He said that "We are not only not approaching stability, we are at a period of maximum deterioration."

We have often said that after the collapse of residential real estate in the last year, the next shoe to drop would be the commercial market. What is being wrung out of the home market is now beginning to be felt big time in commercial real estate. Landlords are putting together all kinds of packages, including free rent and other perks, and still prices are falling. It is believed that values are down a whopping 50% from their peak in 2007.

The Buffalo News reports that shopping center owner Developers Diversified (NYSE: DDR) is set to close on a deal to sell back 11 properties in upstate New York that it bought from privately-held Benderson Development in early 2004. The kicker: on a price-per-square foot basis, Developers Diversified will be selling out at a steep discount to its original purchase price.

With its stock price currently hovering at about 8/10ths of a penny, Circuit City Stores is nearing the day when it will completely cease to exist.

DJM Realty announced that it is has been retained to oversee the sale of the company's real estate assets. In a press release, Andy Graiser and Emilio Amendola, DJM Realty's Co-Presidents, commented that "Circuit City's real estate has begun to create interest among national and regional retailers and supermarkets. There are great opportunities for schools and other non-retail uses."

Trade groups representing developers and commercial lenders are lobbying Congress for a bailout. They are saying that $530 billion dollars of CMS's (commercial mortgage backed securities) are coming due in three years and $160 billion dollars are coming due next year.

The kinds of buildings involved include office complexes, hotels, shopping centers and other commercial buildings. Much like home mortgages, these CMS's were bundled together and sold to third parties and just as the market for home mortgages collapsed, so too this market's refinancing has all but come to a standstill.

Delinquency rates, though quite low, have been rising up to .96% in November from .62% in September. Some analysts predict this will rise to 2% by the end of 2009.

We now have a new financial dilemma. Congress and the Administration were reluctant to bail out the auto industry. The question again is: should we do this for commercial lenders as well?

Many investors know about the key metrics that provide clues about the U.S. economy's health, and where it's likely to head in the near term. Retail sales, housing starts, UPS (NYSE: UPS) and Fed Ex (NYSE: FDX) deliveries and, of course, those infamous corrugated box orders, all provide clues about demand at the retail and wholesale levels, and are positively correlated with increases in U.S. GDP.

What's another metric worth monitoring? Office rents -- and here, like the recent statistics reported for the above metrics, the numbers are not good.

Office rent charges per square foot in Midtown Manhattan, London's West End, and Central Tokyo fell in Q3 for the first time since 2002, a report from CB Richard Ellis indicated Tuesday (pdf).

In New York, Midtown Manhattan office rents fell 2.7% to $98.08 per square foot. Midtown Manhattan includes the headquarters of many of the world's multinational corporations and the Broadway theater district, but does not include the Wall Street financial district, which is located in Lower Manhattan.

In London's West End, occupancy costs declined 5.1% to $248.66 per square foot. In Central Tokyo, costs dropped 5.3% to $184.26 per square foot.

Economist Richard Felson told BloggingStocks Tuesday the fact that rents are declining the world's top three financial centers for the time since 2002 is not a good sign. "It's further evidence of the spread of the recession," Felson said. "Very rarely do you see rates in all three cities declining at the same time. Then again, very rarely do you see all three regional economies in recession at the same time, either, which shows you the fix we're in."

Welcome to Way Off Wall Street, a column dedicated to providing Main Street opinions on topics of interest to investors. Each installment highlights the views of Americans who are far removed from the canyons of Wall Street -- and who often see things more clearly as a result.

The current economic downturn began in real estate, ripping through the construction industry as it went. The banks began to crumble next, as declining real estate values pulled their phantom capital support structure from beneath them.

Then Wall Street began quaking, as good faith and trust were swept aside by the realities of mismanagement, fraud, and corruption. Then the insurance industry began to take a kick in the teeth due to its ties to Wall Street's derivatives securities mill. Soon, we'll all bear the brunt of yet another round of insurance premium increases as a result.

The Washington Post reports that the Mortgage Bankers Association (MBA) is getting what it feels is a raw deal on a mortgage for its Washington headquarters. Boo hoo! The MBA is buying a building there for $100 million, but is paying a higher interest rate on its mortgage as its income declines and the leasing market is slow leaving it with no tenants for the building.

This couldn't have happened to a nicer association. After all, the MBA encouraged people to take out subprime mortgages -- many of which went bad. Despite the Fed's rate cuts from 5.25% to 2.25% mortgage interest rates are up thanks to bankers' fear of lending. And the resulting economic slowdown is making it harder for the MBA to find tenants for its building.

Let's survey the damage to the MBA. First, its membership has declined 17% in the last year and it predicts a 10% to 15% decline in revenue as a result. Bankers are making the MBA put up about 10% more of a down payment than it had planned and the lack of tenants has moved its lender to increase the financing costs slightly. Perhaps there's justice in the universe. If not, at least MBA's predicament is giving it a taste of its own medicine.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

Readers of this space know that my investment bias is toward large-cap companies with demonstrated business models and a competitive advantage in established markets, preferably with a favorable global trend as a support. With the above in mind, U.S. Steel is worth a review.

U.S. Steel Group (NYSE: X) is the fifth largest steel producer in the world.

Analysts expect U.S. Steel's 2008 revenue to increase 13-17%, primarily stemming from acquisitions. Further, distributor inventory levels reached unsustainably low levels in 2007, in the interpretation of many analysts, and the replenishing in 2008 should benefit X.

Meanwhile, oil producer country tube/tube-related products should remain strong, and additional steel sector consolidation should help the sector regain modest pricing power. The Reuters F2008/F2009 EPS consensus estimates for X are $10.87/$11.52.

The risks? Analysts remain concerned about rising raw material costs. A sustained global economic slowdown would hurt U.S. Steel's results.

The First Call mean rating for X is: Buy [15 firms]. Mean 2008 target: $119 [high: $134, low: $90].

Stock Analysis: U.S. Steel is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than two years should be rewarded from X's shares. Note: A safer position would involve waiting for X's shares to pull back to the $110-115 range, but they may not retreat to that level. I'd consider a Sell / Stop Loss at $83.

Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.

Commercial real estate developers are no longer immune to the credit crunch hitting residential real estate owners and developers, according to today's Wall Street Journal. Yesterday in visible proof of the problem, a Las Vegas casino developer, Bruce Eichner, defaulted on a $750 million loan from Deutsche Bank because he was not able to refinance the debt. It's not the first time he's been caught up in a credit crunch. The Journal reports he lost several projects in New York City during its real estate downturn in the early 1990s.

The Journal also points out he's not the only one having trouble getting refinancing. Other commercial developers in trouble according to the Journal include:

• A major Australian shopping mall developer, one of the largest owners of shopping centers in the U.S., has been unable to refinance $3.4 billion in short-term debt.

• New York developer Harry Macklowe, who bought office buildings at the top of the commercial real estate market, can't refinance $7 billion in debt that's due in February. He's trying to sell his General Motors Building in midtown Manhattan to come up with cash.